The figure given below shows the demand curves for five products: A, B, C, D, and E.Figure 6.1

-The income elasticity of demand _____.
A)must be negative because of the law of diminishing marginal utility
B)could be positive, negative or zero, depending on the nature of the good
C)must be positive for all goods because consumers tend to buy more at higher incomes
D)is usually zero because "you can only have so much"
E)can never be zero

Question

The figure given below shows the demand curves for five products: A, B, C, D, and E.Figure 6.1
 
-The income elasticity of demand _____.
A)must be negative because of the law of diminishing marginal utility 
B)could be positive, negative or zero, depending on the nature of the good 
C)must be positive for all goods because consumers tend to buy more at higher incomes 
D)is usually zero because "you can only have so much" 
E)can never be zero

Quizplus · Accepted Answer

The income elasticity of demand can be positive, negative, or zero, depending on the nature of the good. For normal goods, which are goods that consumers buy more of as their incomes increase, the income elasticity of demand is positive. For inferior goods, which are goods that consumers buy less of as their incomes increase, the income elasticity of demand is negative. For luxury goods, which are goods that consumers only buy when their incomes are high enough, the income elasticity of demand is high. Therefore, the income elasticity of demand is not always positive and cannot be determined solely based on the law of diminishing marginal utility.

The Figure Given Below Shows the Demand Curves for Five